"Dollar (Canadian) stages strong rally: TSE's failure to bounce back signals more trouble ahead"
By Lisa Wright Toronto Star Business Reporter
The lacklustre loonie staged a solid comeback yesterday as it climbed back into 64-cent territory - but the stock market just wasn't in the mood to play catch-up.
For a change, it was the U.S. that took the hit, to its dollar and its stocks, as a whole truckload of currencies - including Canada's - gained on the greenback as the brutal week drew to a close.
The loonie reclaimed 0.77 of a cent yesterday to close at 64.08 cents (U.S.).
The Toronto Stock Exchange's 300 composite
index failed to stage a recovery, falling
33.24 points or 0.57 per cent to close at
5766.22.
But Canadian shares fared better than
American blue chips, which dropped 114.31
points or 1.4 per cent to close at
8051.68.
The loonie's strong recovery left many
wondering: Did the Bank of Canada's rate
hike actually help our battered buck?
''It's a legitimate question, but in fact,
the U.S. dollar lost against a host of
other currencies yesterday, not just
ours,'' said Jeff Rubin, chief economist
with CIBC-Wood Gundy.
In fact, some currencies fared better than
the loonie against the U.S. dollar
yesterday without the benefit of an
interest rate increase.
For example, the Swedish Krona was up 3.5
per cent and the Australian dollar was up
1.9 per cent.
By comparison, the loonie rose by 1.3 per
cent, which Rubin said shows that the
interest rate hike was unnecessary.
When all was said and done, the loonie
lost about half a cent last week.
On Thursday the bank rate was hiked to 6
per cent, prompting the chartered banks to
hike borrowing costs for loans and
mortgages. The prime rate jumped a full
point to 7.5 per cent.
''If the Bank of Canada makes another
couple moves like this, then we'll all be
eating canned goods next year,'' quipped
Rubin.
''Even if (avoiding further rate hikes)
means a 60-cent dollar - which I'm not
thrilled with - at least that won't drag
us into a recession,'' Rubin added.
The unpredictable behaviour of the
Canadian dollar and the TSE yesterday left
analysts thinking the worst is yet to
come.
''Thursday was the earthquake; now we're
feeling the aftershocks,'' commented Fred
Ketchen, chief equities trader at
ScotiaMcleod, a brokerage firm.
''When you get a big down draft in one day
(on the stock market) like we did on
Thursday, you usually get a big bounce,''
he said, adding that obviously wasn't the
case yesterday.
Even more interesting was the improved
performance of the loonie, he said.
It was probably a combination of fear of
further interest- rate hikes and
short-covering by speculators that drove
the loonie up three-quarters of a cent,
Ketchen said.
Katherine Beattie, technical analyst at
Standard & Poor's MMS, said the dollar
seems to have settled down a bit but that
it will likely go down further next week.
''It's a pause in the strong down trend,''
Beattie re- marked.
As for the stock market, investors had
better hang on for a bumpy ride.
''It will be a better buying opportunity
in a few weeks or maybe even a few months
from now,'' she said.
Over-all, the TSE is down 26 per cent from
the highs reached in April, and the Dow is
down 12.5 per cent from its peak in July.
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